Wednesday, May 17, 2017

Brexit Can Now Be Quicker But Harder

The European Court of Justice just handed the hard-line European Commission more power to negotiate a deal with the U.K.

By Leonid Bershidsky
The Bloomberg View
May 17, 2017

In one of the most important rulings in its history, the European Court of Justice on Tuesday gave the European Commission broad powers to negotiate trade deals without the approval of each member state. This is likely to make Brexit negotiations much easier than expected, but the final deal -- if there is one -- worse for the U.K.

Formally, the ruling has to do with the EU's free trade agreement with Singapore, signed in 2013. The court decided that only its provisions that concern portfolio investment and arbitration between investors and states fall outside the competence of the European Commission, which negotiates trade deals on behalf of the member states. Since those provisions are there, the Singapore deal requires the ratification of member states. The Commission has the power to negotiate everything else -- the movement of goods and services, transportation, direct investment, intellectual property, antitrust rules.

The unexpected decision -- the court went against the opinion of its advocate general, which only happens in about a third of cases -- opens up an exciting prospect for the U.K. Before the ruling, it had to assume that it would have to wait years before any Brexit agreement reached with the Commission could come into effect, and any European Union member state could derail it. All the countries have different ratification procedures, and in a number of them, a referendum may be called on a major trade deal.

In August 2014, the EU concluded talks on CETA, a comprehensive trade agreement with Canada. It's still not in effect. Last year, the regional parliament of Wallonia in Belgium nearly killed the deal because legislators claimed it would be bad for local farmers.

This is not going to happen to any Brexit deal now, if only the parties agree to keep portfolio investment and conflict resolution out of the talks. That's a small sacrifice to make for clarity on the future relationship between Europe and the United Kingdom. CETA negotiations began in 2009 and took five years until the parties were satisfied -- but the U.K. is an EU member now, and standard harmonization efforts may not be as time-consuming.

Does this, however, make a good deal more likely for the U.K.? That's doubtful. The Commission needs only a qualified majority to reach a trade deal, so it no longer needs to look quite so much over its shoulder at national governments as it negotiates Brexit. That makes life easier for Commission President Jean-Claude Juncker and chief Brexit negotiator Michel Barnier, who have made it clear they want to serve the U.K. with a large divorce bill and harsher terms. There are member states that would like a softer Brexit -- Ireland, Denmark, Cyprus and Poland, for example -- but they aren't particularly influential behind the scenes compared with France and Germany.

So it seems that the European Court of Justice has handed a more valuable gift to the Commission and the hard-line countries than to the U.K. Could that, perhaps, have something to do with one of the U.K.'s negotiating priorities -- getting out from under the ECJ's jurisdiction as soon as possible?

Be that as it may, once Brexit is over, with or without a deal, the EU will from now on have an easier procedure for concluding trade agreements -- something that could one day allow it to make a deal with the U.S. as German Chancellor Angela Merkel and former U.S. President Barack Obama once dreamed, before political developments both in Germany and the U.S. scuppered the plan.

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